Mexico’s insurance industry is benefiting from strong capitalisation levels and operating performances of its companies, which in turn supports A.M. Best’s stable market segment outlook on the industry.
However, the firm states that despite this stable outlook some volatility is to be expected across the industry’s operating performance in the last quarter of 2018, due to fluctuations in the country’s foreign exchange and stock markets.
Additional factors that contribute to this expectation includes a drop in oil prices, as well as the recent cancellation of a Mexico City airport project and a proposal to restrict a number of existing bank commissions.
A.M. Best is adjusting its forecast for 2019 premium growth to between 2% and 2.5%, based on a downward adjustment to 2% for 2019 gross domestic product growth.
This premium forecast takes into account a potential 2% decline in premiums – the worst-case scenario – as a result of the austerity plan proposed by President Andrés Manuel López Obrador.
López Obrador, in an effort to cut government spending, has announced the cancellation of government employees’ private major medical insurance coverage, which could affect life insurance premiums.
Furthermore, uncertainty about the scope of future legislative projects could directly affect the performance of other financial service providers over the medium term.
The economic and regulatory environments in which Mexico’s insurers operate continue to favour competition, as the market share of the five largest insurers has declined to approximately 44% in 2018 from 57% in 2005.
A.M. Best adds that the biggest carriers have larger concentrations in the life, accident and health and auto segments, but the rest of their property/casualty operations have experienced significantly higher competition.
The trend in the property/casualty lines, other than auto, is for the most part attributable to the available capacity of the global reinsurance market, which is reflected in considerably lower retention rates in these lines of business compared with the life, accident & health and auto segments.
Although intensified competition could pressure results, A.M. Best believes the low insurance penetration rate, relative to GDP growth (2.2% in 2017), and the still-developing nature of the system allow for premium organic growth without a potential pricing war that could jeopardise the industry’s profitability.
